How they destroyed our economic system as they said they were saving it

By Cody Willard

As a kid, I often got to stay up late on Thursday nights and watch Hill Street Blues, a great cop show based in Chicago. For the first few seasons, every episode started with the cops all gathered for their morning meeting, listening to their supervisor, Sergeant Esterhaus, tell them about what to expect out there – the latest crimes, what criminals to look for, and what else they needed to be on guard for that day. Sergeant Esterhaus used to finish each of those meetings with the phrase, “Let’s be careful out there.”

As an adult, I often stay up late staring at the ceiling in my apartment in NYC. For the first few seasons here, I used to wish for Wall Street and the banks and the people gathered to work there to make lots of money. I hated that the banks used the Federal Reserve system to covertly transfer wealth from the hardworking American’s pocket to their own by allowing banks to borrow welfare money at below-market rates that they could then lend out at higher rates 10 or 20 or even 30 times over to people and businesses that the banks figure would pay them back. I mean, at least, I knew (or so I thought) that if the banks lent that money out poorly or if they lied about how they were actually gambling that money in a bunch of risky ways that they’d lose their asses.

That all changed in 2008, when the Republicans and Democrats in power sent $2 billion of welfare money directly to Bear Stearns’ shareholders and sent $29 billion of welfare money directly to the people who were stupid enough to gamble their own money by placing bets with Bear Stearns without having bothered to make sure Bear had enough money to pay the bets. That covert transfer of wealth that the Republicans and Democrats in power had used to enrich their banker friends since they’d created the Fed back about 100 years ago, suddenly turned overt.

Remember the logic back then? “If we don’t give $2 billion of welfare money to the people who risked their own money on the future earnings potential (or lack thereof) of Bear Stearns and if we don’t give $29 billion of welfare money to the hedge funds and other banks who gambled at the Bear Stearns casino, then our entire economic system will collapse.”

Well, our system soon started collapsing anyway, and just a few weeks later, the Republicans and Democrats in power sent what’s now almost $200 billion to the shareholders and gambling clients of AIG. Those gambling clients included Goldman Sachs, which was placing huge bets at AIG against the very products Goldman was selling to states and countries around the world as “safe investments”. Remember the logic back then? “If we don’t give hundreds of billions of welfare dollars to the guys who were betting against the products they’ve been selling to other people as ‘safe’, then our entire economic system will collapse.” Goldman got about $20 billion out of the welfare money we sent to pay off the gamblers who placed their bets at the AIG casino.

Well, our system soon started collapsing anyway, and just a few weeks later, the Republicans and Democrats in power who had told the renters and the savers of the world that the only way Fannie Mae and Freddie Mac would ever hurt them was the covert method of transferring their wealth to those people rich enough or stupid enough to risk money on real estate ownership, had to come back and overtly transfer trillions more. Yeah, they came back to the renters and the savers and told them that if they didn’t take immediate ownership of all these trillions of dollars of of below-market-rate loans to these rich/stupid real estate owners what won’t be paid back that “our entire economic system would collapse.”

Well, our system soon started collapsing anyway, and just a few weeks later, the Republicans and Democrats in power sent $800 billion of welfare money to EVERY big bank in the country. Why? I still don’t get it, but apparently, they figured taking the money from the savers and renters and giving it to the crooks at the investment banks who had been saying their balance sheets were fine even as they lent out money and/or packaged products of loans that had been made out to people and businesses that couldn’t pay it back would “finally, once and for all, stop the entire economic system from collapsing.

Well, our system soon started collapsing anyway, so the Republicans and Democrats in power told those investment banks to go ahead and take every single dollar they’ve got – the $800 billion of the bank bailout welfare money, the $200 billion from the AIG bailout welfare money, and another other money they can get their hands on – and to go gamble it at each other’s casinos again. They said that if the renters and the savers of the world wouldn’t pay for any and all losses these banks might end up making in the markets then our entire economic system would collapse.”

And so here we are. We’ve sent trillions of dollars of welfare money to the crooks on Wall Street who lied repeatedly to all of us about the risks they were taking with our deposits and our investments and we’ve told them that if they ever lose any money again not to worry about it because we’ve “guaranteed” their losses, and guess what?

The banks used the money we’ve staked them and went to each other’s otherwise-unfunded casinos and gambled. Guess what? Most of ‘em had a hot streak for the last three months. And so they report “record earnings” at some of these places and the renters and the savers are supposed to be all happy for them?

Meanwhile, our entire economic system has indeed collapsed. Unemployment’s shooting into the double digits, GDP is in decline and Americans are in exactly the kind of financial pain that they told us we wouldn’t be in if we’d just give trillions of welfare dollars to Wall Street. Now we no longer want Wall Street to make money – making money on Wall Street in 2009 means that you profiteered by gaming the system well using taxpayer largesse as your capital base and knowing that you’d never have to deal with any losses.

Had we not bailed out Wall Street and the homeowners, there would be companies and people who had been saving and preparing for this downturn who then could come in and buy up the assets and hire the employees from Goldman Sachs, GE Capital, Citigroup for pennies on the dollar. Housing prices would have already dropped to levels where those renters and savers could step in and be rewarded for their responsible planning and buy those homes at once-in-a-lifetime prices that would make them rich like the bankers we just bailed out.

And our entire economic system would be fine.

Instead, somewhere in 2008, as I told viewers on Happy Hour on September 12, 2008, the day after the Republicans and Democrats in power voted for TARP – our entire economic system has indeed collapsed because they destroyed it with the policies they created supposedly trying to “save” it.

Wall Street and every single policy coming out of Washington DC is geared towards redistributing wealth upwardly and protecting the ownership/corporate/banking class of this country on the backs of the responsible saver and renter.

I feel like Sergeant Esterhaus when I talk to investors these days. We’ve got to protect ourselves from all the crooks and crime and theft and violence emanating from Wall Street and Washington DC. And as he’d tell ya, “Let’s be careful out there!”

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About The Cody Word

Cody Willard writes the Revolution Investing investment newsletter for MarketWatch and posts the trades from his personal account at TradingWithCody.com He is the founder of WallStreetAll-Stars.com and the principal of CL Willard Capital. Cody serves as an adjunct professor at Seton Hall University and is on the University of New Mexico Alumni Board. He was an anchor on the Fox Business Network, where he was the co-host of the long-time #1-rated show on the network, Fox Business Happy Hour. Cody, a former hedge fund manager, and his stock picks and economic outlooks have been featured on NBC’s The Tonight Show with Jay Leno, ABC’s 20/20, CBS Evening News, CNBC’s SquawkBox, Jon Stewart’s The Daily Show, as well as in the Financial Times, Wall Street Journal, New York Times, and many other outlets.